How to Solve the Bitcoin Energy Problem
As we all know, bitcoin has an energy problem.
And there’s a simple way for governments to solve it: make it completely free for bitcoin miners to operate in your country, provided they use 100% solar energy.
This seems like such a simple and obvious solution to the climate crisis, but obviously it’s not obvious. Let’s explore how this will work.
Here’s the simple way to think about bitcoin: it’s a global payments network that requires massive computing power to run. A picture is worth a thousand words, so here’s another 3,000 words:
Every one of these computers is a math genius that would put Einstein to shame. In fact, we could think of the network itself like a giant computer: the most powerful computer ever built by humans, in terms of sheer calculations. It’s not just a supercomputer, it’s a metacomputer. Way bigger than a calculator.
So, how do these bitcoin mining businesses make money? In return for keeping the bitcoin network (or the bitcoin computer) running, you are rewarded with bitcoin. But your single largest expense is electricity to run all those machines: just over 50% of your cost is paying for power.
Thus, bitcoin businesses are constantly on the hunt for the cheapest power sources, which takes them to some weird places, like rural Washington state (cheap hydroelectric power) or Keflavik, Iceland (cheap geothermal power).
The photos above show massive computing centers, but the computers that run bitcoin can be located anywhere: imagine a shipping container, or modular pod that you just plunk down next to a power source and plug in.
This makes bitcoin businesses perfect candidates for using “stranded energy,” i.e., green or renewable energy that can’t be used because there are no power lines to transport it. Here’s an example (10:00 video).
Using renewable energy for bitcoin is already well underway. Between 40 to 75 percent of bitcoin mining businesses already use solar, wind, or geothermal power, according to the New York Times. (The precise number is hard to track, because there are no federal reporting requirements.)
We can accelerate this movement to renewable bitcoin mining by embracing it. And about the federal reporting requirements? We can change that, too.
How to Turn Bitcoin Green
Governments can make it free for bitcoin miners to operate, by which I mean 100% of the cost of building solar infrastructure for bitcoin mining will be tax-deductible.
Today, the total energy consumption of the bitcoin network is about 200 TWh per year. The U.S. currently generates about 2% of our total energy through solar: 91 TWh per year. Bring the bitcoin miners to the U.S., require them to use solar, and you’ve just doubled the U.S. solar capacity.
Of course, there are already commercial tax credits available for businesses that invest in solar energy: U.S. businesses can currently claim 30% of the cost of installing solar panels. This is way too stingy. Let’s make 100% of the cost of building solar infrastructure for bitcoin mining tax-deductible.
Then, let’s pair that tax credit with a requirement that bitcoin miners must use solar. They will flock to the U.S. because we really are a great place to do business — and they will build out our renewable infrastructure, which will have all kinds of follow-on effects:
- More solar panels means more infrastructure around solar: more efficient photovoltaics, better storage and delivery, and so on;
- More compute power means more of this global bitcoin computer is located in the U.S., where it can be better regulated;
- More tech development means more innovation and entrepreneurship will flood into the U.S., creating thousands of high-tech jobs.
I am using examples from the United States because I hope we implement it first. But any forward-thinking government can use this idea and have the bitcoin industry pay for building out your renewable infrastructure.
Instead of seeing bitcoin’s energy consumption as a problem, let’s see it as an opportunity: this is one of the few industries in the world with both the money and the willpower to build out our solar infrastructure overnight.
The Hardest Part is Paying for the Panels
Building out the infrastructure is expensive: here I can speak from experience. My wife and I own a home with a large, flat roof and lots of southern exposure: the perfect situation for solar. But we sat on the decision for years, because the initial investment is the hardest to make.
Paying for the panels was the hardest part. Like buying a new furnace, it’s hard to make the investment if you don’t absolutely have to. What got us off our butts was the Obama-era tax credits for installing solar, which were about to expire. At the very last minute, we finally made the decision to install solar.
We’re so glad we did.
Once you have solar, it’s a game-changer. Solar energy is free and abundant. Talk about passive income: you wake up in the morning, see the sun shining, and know that you are actually making money (we sell excess power back to the electric company, so some months we have a negative energy bill).
The panels paid for themselves, of course, and then we doubled down by buying a Tesla (which we bought with bitcoin). So now we have an electric car, powered by solar energy. It doesn’t just feel good to be helping the environment: it feels good to be making so much money.
The lesson is that it’s difficult to make the initial investment, but the rewards are real. The long-term cost savings and income generation pay for themselves many, many times over.
And that’s a single household. Imagine if we deployed this on a national scale.
That requires open-mindedness.
Successful Investors are Open-Minded
To be a successful investor — whether investing in crypto or investing in national infrastructure — we have to be open-minded.
Humans fear the unknown. Our ancestors learned not to venture into dark caves, where they might get mauled by a bear. Today, the “dark cave” is anything that’s new and unfamiliar, whether it’s AI, the Metaverse, or crypto investing.
“That’s really scary.” It’s the comment I hear most frequently from people learning about these new technologies. It’s not that the technologies themselves are scary, but our fear of the unknown.
Renewable energy is still scary for some people, because it’s unknown. Same for electric cars. (There’s even a name for the fear of running out of electric charge while driving. It’s called “range anxiety.”)
Open-mindedness is to put aside these fears, to welcome the new. As the critic Anton Ego put it in Ratatouille, “the new needs friends.”
Successful investors — and I have watched many of them in action — are open-minded. They have to be, in order to spot the next Google or Apple. When they’re being pitched on a new company, their default attitude is not, “This is stupid” or “This is scary.” Their default attitude is open-mindedness.
Over the past few weeks, we’ve been releasing new Investor Mindset MP3s: think of them like guided meditations for investors. These tools, which take less than 15 minutes a day, are helping our paid members build the critical mental skills needed to build wealth. Our latest episode is on open-mindedness.
We have to learn to override our fear of the new. To be open-minded is to believe there are always better ways of doing things. That includes mining bitcoin, regulating bitcoin, and (dare I say it) welcoming bitcoin.
This week’s Investor Mindset will help you build the quality of open-mindedness. And if we’re open-minded enough, it might just help us solve the climate crisis before the end of the decade.
John Hargrave is the author of Blockchain for Everyone: How I Learned the Secrets of the New Millionaire Class, the bible of blockchain investing.